Unveiling the Potential: Funding Climate-Smart Economic Expansion in Africa through High-Integrity Carbon Markets
By Tariye Gbadegesin
Wednesday September 6, 2023
At Ener-G-Africa, a solar panel factory in Cape Town, South Africa, women come together to produce high-quality solar panels. This factory is entirely run by women, showcasing their capabilities and expertise. (REUTERS/Esa Alexander Acquire Licensing Rights)
Since I can remember, Africa and its people have always been affected by climate change. Recent data reveals that in 2020, nine out of the ten countries most impacted by climate change were in Africa. This year, East Africa encountered the most severe drought in forty years, resulting in catastrophic consequences for Kenya, Somalia, and Ethiopia.
The conclusion is straightforward: without climate change, these events would not have occurred.
African countries have contributed significantly less to climate change compared to others; however, Africa has suffered the most severe impact. The continent is on the verge of rapid industrialization, but it must navigate this growth while reducing emissions.
This presents a unique growth paradigm. However, Africa has the potential to embrace a new kind of growth, known as green growth. This novel approach to economic growth requires innovative strategies for infrastructure development, the adoption of new technologies and energy sources, and importantly, a fresh approach to finance that can drive economic growth without harming the planet.
African countries are rising to the challenge and are willing to explore new approaches. Several countries have already made ambitious pledges, but they emphasize the need for support from the international and multilateral communities to fully fund these commitments.
For instance, South Africa has set a target to reduce emissions by 28% by 2030, as long as they receive “adequate international support.” Ghana has also committed to a 15% reduction on its own, which can be increased to 30% with international assistance.
The funding gap to achieve Africa’s commitments is vast. Estimates indicate that the continent needs $2.8 trillion by 2030 to fully fund the announced commitments.
This is why it is crucial to establish close partnerships between different sources of funding, including the international community, domestic capital sources within Africa, and the private sector. These partnerships can deliver the necessary financial impact.
As co-chair of the Voluntary Carbon Markets Integrity Initiative (VCMI), I believe that Africa holds untapped potential to lead in deploying finance towards creating a greener future for the continent and addressing the global climate crisis.
One remarkable initiative is The African Carbon Markets Initiative (ACMI), launched at COP27 last year.
Voluntary carbon markets (VCMs) play a crucial role in channeling investments that can build sustainable and eco-friendly economies while contributing to global climate action. Companies purchase carbon credits issued by African developers, companies, communities, and governments to finance projects focused on carbon removal or reduction, such as forest regeneration and renewable energy. These projects also benefit local livelihoods and biodiversity.
Africa has immense potential to supply high-quality carbon credits. Countries like Ghana, Kenya, and the Democratic Republic of Congo have actively pursued the development and expansion of their domestic carbon markets.
We are witnessing coordination across the continent through ACMI, which aims to drive growth in Africa’s voluntary carbon markets by promoting African carbon credits, mobilizing significant capital, and creating millions of jobs in Africa by 2030.
With the Africa Climate Summit taking place in Nairobi this week, it is essential to reflect on what needs to be in place for Africa to establish a vibrant and well-capitalized VCM that supports green growth and contributes meaningfully to global climate action.
The first pillar is integrity. We must prioritize end-to-end integrity in the VCM system. Upholding responsibility, accountability, and transparency is crucial in the buyer-seller relationship of carbon credits. Guidelines and frameworks governing integrity in the VCM are essential.
Several tools can aid in this endeavor. The Integrity Council’s Core Carbon Principles (CCPs) provide standards for creating high-quality credits, while the Voluntary Carbon Markets Integrity Initiative’s (VCMI) Claims Code of Practice serves as a rulebook for companies purchasing carbon credits, guiding them on the proper use of these credits and the claims they can make regarding their climate impact achievements.
It is vital for companies to only purchase carbon credits alongside measurable, science-based emissions reduction pathways. These credits should not be used to continue business-as-usual emissions. Developers, sellers, and traders of carbon credits must integrate governance, emissions impact, and sustainable development outcomes into the credits they sell.
Accountability is key for all parties involved in the VCM to establish trust and ensure end-to-end integrity.
The second element is action. While we have seen some countries and initiatives leading the way, we need more action from state and non-state actors in Africa and worldwide.
The international donor community should provide capacity-building support, technical assistance, and technologies to facilitate registration, verification, and reporting for African countries and project developers.
Buyers should engage with existing guidance and demonstrate confidence in the market. Corporate buyers with significant commitments can drive countries and developers to produce high-quality supply.
The third aspect is creating a favorable environment and investment framework at the country level to ensure the success of the VCM.
African countries must carefully consider whether, why, how, and when to engage with VCMs and other carbon finance mechanisms. The VCMI, in partnership with the United Nations Development Programme, has released a VCM Access Strategy Toolkit, highlighting the role of high-integrity VCMs in global climate mitigation efforts and explaining how countries can benefit from VCM finance for sustainable development, climate action, and nature conservation priorities.
The final pillar is transparency and equity. The African VCM has the potential to be fair and equitable, where credit prices reflect their true value and the proceeds are shared inclusively with local communities, indigenous peoples, and other stakeholders who stand to gain or lose the most from these projects. The VCM should be a market that benefits people and the planet.
If we are to achieve our global climate ambitions, we need innovative ways to finance these efforts. The VCM is one such tool within a range of financial interventions available to drive climate action. Let’s work together to realize its full potential.